The Evolution of Active Management: From Stock Picking to Active Asset Allocation
The debate between active and passive money management has been ongoing for decades, with passive investing gaining increasing support due to its superior long-term performance relative to traditional active stock picking. Data over the past two decades — likely even longer when adjusting for survivorship bias — has consistently shown that approximately 95% of active managers (of all domestic U.S. funds) underperform their benchmarks. The sheer scale of inefficiency is striking: In 2020 alone, American investors paid an estimated $190 billion in fees to active managers, largely subsidizing a system that fails to deliver (95% of the time!) consistent excess returns.